Wednesday, June 04, 2008

How $4 Gas Became Profit Source For One Gas Pump Manufacturer

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Tom McGee's business is surging faster than the price of gasoline.

That's because PMP Corp. is one of the few places in the U.S. that gas stations can turn to when they need old-style gas pumps adapted to register prices over $4 a gallon. The mechanical dials on many vintage pumps can't register prices over $3.99 a gallon or ring up single sales north of $99.99, which helps explain why Mr. McGee held an emergency meeting at his company here May 21.

The brainstorming session, in a conference room at PMP, focused on how to increase output at the small factory in the face of a sudden surge of demand for its extremely specialized service. PMP takes the mechanical internal organs from old gas pumps and modifies them so they can tally higher numbers. Many small-town stations, especially in remote, rural areas, can't afford to buy new pumps, which can cost as much as $10,000 each. PMP's retrofits are between $600 and $800.

"Our business was relatively flat until the first week of March," says Mr. McGee, the company's president. "Then the price of fuel, mainly kerosene and diesel, went over $4" a gallon and the phone hasn't stopped ringing.

PMP has a 20-week backlog, up from three days in March, and Mr. McGee's 70 workers are doing maximum overtime. He has hired more temporary workers, but it is slow getting them up to speed. The labor-intensive work involves tasks such as printing new numbers on the spinning wheels that form the core of the pricing mechanisms. His suppliers are running out of crucial parts.

Only a handful of companies offer this retrofitting. The work is also done by pump manufacturers like Gilbarco Veeder-Root, part of industrial conglomerate Danaher Corp., of Washington, D.C. An estimated 8,500 of the nation's 170,000 gas stations have the old-style pumps, according to Bob Renkes, executive vice president of the Petroleum Equipment Institute. "Mostly they're mom-and-pops, in rural areas like the Dakotas, Mississippi," says Mr. Renkes.

Each state has its own rules for what stations have to do to adapt to higher prices. Some are allowing "half-gallon pricing" until the stations can have their equipment upgraded.

But that is against the law in Kentucky, which fears consumer confusion. Minnesota is more easygoing -- to a point. Stations can keep using the old pumps indefinitely, but must tape over the price gauge -- while leaving the gallon gauge visible. That way, buyers know how much fuel they have taken and can settle with the attendant, who presumably will become deft at using a calculator.

Mr. McGee is philosophical about his business: "We know this is a windfall and that it will eventually pass," he says. "And this isn't really a very profitable part of our business, so it's not like we're making tons of money on this."

PMP, founded in 1950 as Petroleum Meter & Gas, also renovates other gas-station devices, such as the small printers in modern digital gas pumps. The company, which is private, didn't disclose its sales.

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